The inability of Republican and Democrat politicians in the House of Representatives and the Senate led to the partial shutdown of the Federal government for 16 days in October and served as the curtain-raiser for a bout of brinkmanship over the US debt ceiling which, if unresolved, could have forced the world’s largest economy into a sovereign default. The critical issue was President Obama’s Affordable Care Act which some sections of the Republican Party were vitriolically opposed to. In the end, last minute deals were struck which provided a temporary Federal budget, allowing employees who had been “furloughed” to return to work and a short-term increase to the US debt ceiling.
Optimism is running high that an accord between President Obama’s Democrats, who control the Senate, and opposition Republicans who control the House of Representatives can be voted into law before the Christmas recess. The accord would fund a two year budget for the federal government and is designed to reduce the deficit by $23 billion.
The agreement will require new federal workers to pay higher pension contributions, but will not raise taxes – a key Republican demand. Air travellers will face a $5 federal airport security levy on return flights. Democrats were unable to secure an agreement to allow unemployment benefits after 26 weeks of claims, meaning that some one million Americans will lose these benefits from December 28. The deal will offset $63 billion in automatic spending cuts – the Sequester – which came into force after no bipartisan accord could be found in the aftermath of the USA narrowly avoiding its “Fiscal Cliff” catastrophe. The cuts hit US military and domestic spending in an automatic and non-coordinated manner.
In a written statement, the President welcomed a “positive first step” and noted: "This agreement doesn't include everything I'd like - and I know many Republicans feel the same way. That's the nature of compromise. Because it's the first budget that leaders of both parties have agreed to in a few years, the American people should not have to endure the pain of another government shutdown for the next two years."
Law makers had until 13th December to thrash out a budget deal before further automatic cuts would apply. Assuming the budget is passed, that leaves just the thorny issue of the debt ceiling to be resolved by mid-February.